On April 24, the Consumer Financial Protection Bureau (CFPB or Bureau) released a special edition of its Supervisory Highlights report focusing on examinations of the residential mortgage servicing market that were completed between April 1, 2023 and December 31, 2023. According to the report, the CFPB found instances of mortgage servicers charging illegal fees, such as prohibited property inspection fees, and sending deceptive notices to homeowners. Examiners also found servicers violating Regulation X’s loss mitigation rules.

As we have discussed, the CFPB has been laser-focused on fees charged by banks and financial companies, which the Bureau refers to as “junk fees.” According to the report, examiners found instances of mortgage servicers assessing “junk fees,” including unnecessary property inspection fees and improper late fees. Additionally, mortgage servicers were found to have engaged in other unfair, deceptive, and abusive acts or practices (UDAAP), such as sending deceptive loss mitigation eligibility notices to consumers.

The Bureau is currently reviewing Regulation X’s existing framework to identify ways to purportedly “simplify and streamline the mortgage servicing rules.” According to the report, the CFPB is considering a proposal to streamline the mortgage servicing rules, but only if it would promote greater agility on the part of mortgage servicers in responding to future economic shocks while also continuing to ensure they meet their existing obligations to assist borrowers.

Key findings from the report include:

• Examiners detailed specific violations, including charges for property inspections prohibited by investor guidelines, late fees charged that exceeded the amounts allowed in the mortgage agreements, failure to waive existing fees following acceptance of COVID-19 loan modifications, failure to provide adequate descriptions of fees in periodic statements, and failure to make timely disbursements from escrow accounts for tax and insurance payments which caused borrowers to incur penalties.
• Examiners found deceptive practices related to loss mitigation eligibility notices and delinquency notices, including sending notices to homeowners in default that stated they had been approved for a repayment option when, in fact, no final decisions had been made, and some of the homeowners were ultimately rejected. Examiners also found some servicers improperly denied requests for assistance and failed to evaluate struggling borrowers for repayment options as required under the CFPB’s mortgage servicing rules.

In response to these findings, the servicers have taken corrective actions, including refunding fees, improving internal processes, remediating consumers, implementing additional policies and procedures, and enhancing existing ones.

Our Take:

The CFPB’s scrutiny of fees imposed by mortgage servicers appears to be a new avenue for the Bureau to attack “junk fees” after the Bureau has engaged in supervisory and enforcement actions and issued guidance concerning all types of deposit-related fees over the past two years. Since President Biden is leveraging this campaign against bank fees as part of his reelection campaign, this new attack on mortgage servicer fees will likely become a new key focus for the CFPB during 2024 and perhaps beyond, depending on the outcome of the presidential election.